Financial derivates (Numerical)

1. Prabir has INR60 Lakhs in hand. He is contemplating investment in the shares of Star
Accessories Ltd (SAL) which is being traded at INR 200 per share. Prabir expects a dividend
declaration of INR37 per share 3 months hence and a market price of INR185 per share at the
end of the year, at which Prabir plans to sell of all his holdings. If the discount rate is 12% p.a.,
what will be the course of action if Prabir discounts his cash flows under continuous
compounding approach and monthly discounting approach?

2. Shares of Sandeep Ltd are being quoted at INR600. 3-Months Futures Contract Rate is
INR636 per share for a lot size of 500 shares. If the Sandeep Ltd is not expected to distribute any
dividend in the interim, risk free rate of return is 9%, what is the recommended course of action
for a trader in shares? If the 3-Months Futures Contract Rate is INR 600, what should be the
action?

3. Sundar Ramalingam had entered 5 Put Options and 5 Call Options in different securities, the
particulars of which are given below, along with their exercise price and actual market price on
the date of exercise —
Call options Put options
Security Exercise Actual market price Security Exercise Actual market
price (Spot price) price price (Spot
price)
P 370 376 A 118 122
Q 450 444 B 758 758
R 1790 1700 C 350 340
S 135 140 D 65 69
T 953 953 E 230 220
What is his position on the date of exercise and what would he do?

4. Determine the value of option, both call and put, on expiry for the stock of Nirmal Spice
Foods (NSF) Ltd. from the following information-
• Exercise Price - INR510
• Spot Price on Exercise Date Ranges between INR495 and INR525, with interval of INR5.
Also state what will be the action on the above range of prices for both the options.

5. CMC Ltd. shares are presently quoted at INR100.3-Month’s call option carries a premium of
INR15 for a strike price of INR120, and 3-Month’s put option carries a premium of INR20 for a
strike price of INR120.
If the spot price on the expiry date is in the range of INR90 to INR160, with intervals of INR5,
prepare Net Pay-Off Graph for both Call Option and Put Option, from both the buyer’s
perspective and the option writer’s perspective.